Bitcoin’s Dominance and The Halving Event

By Amir K

The purpose of this article is to delve into why Bitcoin is the single most buzzed about cryptocurrency, to discuss what Bitcoin’s halving entails, and how the past halvings have affected the global cryptocurrency market.

A head start in the race

From the chart the most obvious conclusion one could come to is that Bitcoin’s dominance over the past decade has only been challenged once – in around July 2013, by Ethereum.

The crucial reason Bitcoin has been consistently ahead of the entire market since its deployment is simply because it has been the first of the novel cryptocurrencies to have been deployed with provable (mathematically sound) security and scalable growth coupled with a widespread adoption and acclaim globally, at a time when nobody envisioned cryptocurrencies truly possible except a select handful that included Bitcoin’s (in)famous founder – Satoshi Nakomoto.

Since the first block has been mined in 2009 on the blockchain, other cryptocurrencies have all followed suit by adopting at least some of their ideas from the so-called king of crypto, perhaps bar a few exceptions that were built on the established concepts in revolutionary ways, one of which is Ethereum.

Ethereum introduced another novel idea to the Blockchain – that of Smart Contracts – and it has only been five years since its inception as opposed to Bitcoin which is older than ten. It has since evolved to be the second dominating currency and is buzzed consistently albeit to a lesser extent.

Consistent speculation, public trust, and performance bottleneck

Because cryptocurrencies have been subject to extreme growth in the face of speculation, especially in the media, Bitcoin has become a token buzzword that most writers tend to use to grab the attention of the so-called “average Joe”. This effect has made it a similar asset in its class to Gold – it may not be the single best cryptocurrency when it comes to technological aspects (in fact, it is facing problems we will shortly discuss), but because of its consistent domineering effect and exposure in the media, it is the asset most investors go for first, which further snowballs its growth and public reputation.

When it comes to its technological aspects, because of the unchanged algorithm and core operation technique used by Bitcoin, Scalability is a core factor of consideration. By increasing the so-called difficulty of mining each block every 4 years or roughly halving the rewards, it has reached somewhat of a bottleneck.

At its peak number of transactions, for instance, it can be observed that in 2017 a typical user on the Blockchain would have had to wait roughly 2 days to have their transaction on the blockchain verified, and if a user was to mine Bitcoin on their platform, because of the need to download the entire blockchain, it would occupy 0.25 TeraBytes of both internet bandwidth and storage space according to Statista.

This problem is consistent – the fact that it is a rigid unchangeable aspect of the cryptocurrency means that most likely sooner or later another widespread currency without these problems will take over.

Another problematic aspect is the way in which blocks are fundamentally verified. It relies on “Proof of Work” of computers solving mathematical puzzles, which also means as Bitcoin’s adoption spreads so does global electricity usage. In 2017, Bitcoin mining consumed more electricity than the entire nation of Ireland.

What the halving is and what it means both for Bitcoin and the rest of the market

Price moves

Because of the aforementioned domination of Bitcoin as it occupies more than 2/3rds of the market capitalization at the time of writing this article, speculation and price changes of Bitcoin are intimately tied to the rest of the alt-coins and their movements.

Which one would be the wisest investment?

A popular adage when it comes to investing is that “past performance is not indicative of future results”. Nevertheless, if we were to consider that for every previous rally of Bitcoin, alt-coin growth has outpaced its performance by a factor of 7 on average – it would be wise to at least diversify and not make Bitcoin your sole position in the market.

What’s the Halving? How will this affect the entire market?

Bitcoin’s halving event is a fundamental algorithm that comes into play once every 4 years or so in order to halve the rewards of mining the blocks – thus making it “scarcer”. The 3rd halving was on the 11th of May – and the reason this event is crucial is because it a test of whether this protocol is sufficient to encourage scarcity, or if it would fail catastrophically as investors turn to other assets since this is a non-tangible asset for which rewards continuously fall.

It is quite possible (with popular sentiment) that the 3rd time is literally the charm for Bitcoin investors, and we may be on the verge of yet another exponential rise without the usual stagnation that takes place after a Halving event – especially considering we are close to breaching the price of USD 10,000 per Bitcoin.

Currently, another factor that could influence growth is that people may turn to this asset as trust in centralized governments and banks is falling with COVID-19. This factor, and the aforementioned points taken into account could be the push needed to tip Bitcoin and the alt-coins into yet another astounding bull run, which is why it is important to understand both what the Bitcoin Halving is and how it affects all cryptocurrencies.

The authors of this publication are not qualified to provide financial or investment advice and as such the content provided should not be construed in this manner. All information is intended purely for educational purposes and is provided for the personal interest of UNIT members. The opinions expressed within the article do not reflect those of UNIT as an organisation, its partners or its sponsors.